The Prince of Wales cut his tax bill by £5,000 last year despite earning an additional £1 million after some astute accounting, according to the annual review for the Prince and the Duchess of Cornwall.

The accounts for the Duchy of Cornwall, published yesterday, also show that the Prince is sticking to his environmental principles by cutting his carbon footprint by 18 per cent - a reduction aided by converting his sports car to run on by-products of the cheese and wine industries.

The Prince took advantage of tax rules that allow self-employed businessmen to write off expenses against tax to reduce his bill to £3.4 million against earnings of £16.3 million.

The accounts for the Duchy of Cornwall showed that his business has thrived despite the credit crunch because of earnings derived from commercial and agricultural property.

The Prince also escaped rising fuel costs by replacing traditional boilers at his Highgrove and Birkhall estates with woodchip boilers and installing more efficient heating systems at Clarence House. While the average fuel bill for British householders rose by nearly 5 per cent, the Prince's fell by 14 per cent to £139,000.

Sir Michael Peat, the Prince's private secretary and a former City accountant, said that an expanding payroll for staff at Highgrove and higher pension contributions meant that he was able to offset more costs against tax.

“Our expenses have come up by more than our income. His tax affairs, as you can imagine, are absolutely, scrupulously whiter than white.”

Staff costs rose 13 per cent to £5.4million. The Duchy now employs 111 official staff — five more than last year — including two butlers, two chauffeurs and ten gardeners. Gardening expenses rose sharply by more than a third to £63,000.

Princes William and Harry also contributed to an increase in staff expenses because two people were hired to deal with the Diana Memorial Concert and to help with charity work. Sir Michael confirmed that Prince William was seeking a full-time press officer.

The Prince of Wales, who often lectures on the importance of reducing the impact of the individual on the environment, reduced the carbon dioxide emissions of his household from 3,425 tonnes in 2006-07 to 2,795 tonnes. His farm let him down by increasing emissions by 6 per cent to 2,459 tonnes.

Sir Michael explained that the increase was because of an increase in the number of livestock, which expel methane into the atmosphere.

He claimed in mitigation that the Prince's animals may be cleaner than other farm animals. “We think our animals release less methane because they eat more grass and not as much grain or feed,” he said.

Sir Michael said that staff at Clarence House were also being encouraged to cycle to work in an effort to reduce their carbon footprint. “We have quite a few office bicycles for people who cannot cycle to work, so that they can then use them to cycle during the day.”

He said that the idea had caught on to the point that “now it is quite a cavalry charge every morning”.

The Prince's private spending, now known as “unofficial expenditure”, fell from £2.6 million to £2.2 million but he did lavish an additional £25,000 on official entertaining and receptions, bringing the bill to £416,000.

The cost of official travel by air and rail, funded by the taxpayer through grants-in-aid, fell 22 per cent from £1.4million to £1.1 million.

Other travel and subsistence costs increased by 3 per cent to £227,000 despite a fall of 40 per cent in miles travelled. Sir Michael said there was no correlation between distance and cost: “It depends on the sort of miles.”

The Prince's offices also appear to have become more hi-tech, as spending on stationery and office equipment fell by £32,000 (to £183,000) but computing costs rose by £26,000 (to £321,000).

Government subsidy for the Duchy remained constant at £2.6 million. The Prince and the Duchess, whose expenses are not listed separately, received 31,935 letters last year, an increase of 82. The Prince wrote 2,041 letters in response while the Duchess replied to 1,294.

Sir Michael said that she had also attended fewer engagements - 201 in 2007-08 - because of a period of convalescence recovering from surgery.

HOW THE ASTON THRIVES ON CHEESE AND WINE

The Prince of Wales cut his carbon footprint last year by converting his sports car to run on fuel made from cheese and wine.

The conversion of his 15mpg Aston Martin DB5, which was given to him by the Queen as a 21st birthday present in 1969, was listed in the Prince's annual review as one of the measures he has taken to reduce his carbon emissions last year by 18 per cent. The review mentions that the car now runs on “100 per cent bioethanol made from surplus wine”.

Sir Michael Peat, the Prince's private secretary, said that the wine was not sourced from leftovers from entertaining guests but from a vineyard in Wiltshire. “I think our wine is surplus English wine,” he said. “It's wonderful. It's not corked.”

Vintners must abide by European Union quotas on wine production, meaning that any excess cannot be sold for consumption but can be distilled to make bio-ethanol.

The Duchy of Cornwall sources its biofuel from Greenfuels, a supplier based in Stonehouse, Gloucestershire. James Hygate, managing director, said that he manufactured ethanol from white wine and from a by-product of cheese manufacture. The exhaust does not smell of cheese or wine because the alcohol is distilled, he said. “It actually smells like vodka.”

The Prince spent an estimated £5,000 on converting his car. His fleet comprises two Jaguars, two Audis and a Range Rover, which have all been converted to run on biodiesel.

Sir Michael said that the Aston, a convertible version of the the one driven by Sean Connery in the 1964 film Goldfinger, is driven about 300 miles a year by the Prince. He suggested that the possibility of running it on wine left over from entertaining was something that may be looked into.

Times recommends

• Who killed Jade Goody?
• Daisy Goodwin: This is better than real sex
• Foods that can help to prevent swine flu